Management missteps led Inacom to Chapter 11

By Simon Barker-BenfieldTimes-Union business writer,

Inacom is by no means a new company.

Bulletin board material

Like old-fashioned signal lamps, the e-mails and bulletin board postings flash across America's virtual landscape as former Inacom employees swap information, hurt and anger, trade jobs leads, plan lawsuits and try to help former clients in the wake of Inacom's bankruptcy.

The Web is a natural meeting place for people with shared interests. Message boards draw investors exchanging opinions about stocks, not to mention anonymous scam artists with pump-and-dump schemes -- pump up the stock price with chat and then dump it. Message boards serve as platforms for employees to gripe about their companies.

And message boards can serve as a meeting place for laid-off employees to stay in touch with each other.

The messages from former employees of Inacom are stacked in their hundreds on message boards maintained by Yahoo!, eGroups.com and other Web sites.

Here are a few samples of the topics covered.

"My wife was diagnosed with multiple sclerosis earlier this year. ... the medicine she is on costs over $800 a month. ... I'm afraid we may get a huge bill out of the blue. "

"I'm out over $5,000."

"Our clients need their data -- please read: If you have any of the following info and are willing to give it to the customer, please e-mail me ..."

"Meeting to exchange information: I understand there is an informal get together at the Roswell Taco Mac on Wednesdays at noon. Can anyone confirm that and is there an open invite to join?"

"It appears that there is a meeting of creditors scheduled for Aug.11 @ 3 p.m. in Wilmington, Del. I am not quite sure what this all means for us. Did anyone else get a copy ?"

"Take a moment to update job status."

"Jobs at Unisys."

"Hiring a lawyer? "

"All Inacom employees: I am a technical recruiter in California ..."

"I will not get mad but I will get even,"

"How do you explain what happened to three children under 10??? ... Go RUN and hug your wife and kids right now. And remember, you are not the only one tense. It will get better."

-- Compiled by Simon Barker-Benfield

The company started life in the 1970s as InaComp Computer Centers of Troy, Mich., the creation of Rick Inatome, a newly minted graduate of Michigan State University.

In 1991, Inacomp merged with ValCom Inc. of Omaha, Neb., which was the 1982 creation of Bill Fairfield, a native Nebraskan and graduate of the Harvard Business School, which is no mean credential to have. If business schools were a religion, the HBS would be the Vatican.

Business boomed, but the business was also changing and Inacom did not change fast enough, say people who watch the industry.

Computer prices dropped steadily in the 1990s, reducing profits and causing medium-sized resellers like Inacom and other middlemen to paddle faster and faster against the current to stay in place, said David J. Manthey, an analyst with the investment firm of Robert W. Baird & Co. in Milwaukee.

Manufacturers offered financial incentives, typically in the form of cash or rebates, to encourage resellers to sell more of their machines, and these made up a significant portion of resellers' profits, said Manthey.

Former employees point to the incentives as one reason management was slow to exit the sales side of the business. But being hooked on the cash money fix from rebates came with a cost.

"Over time, the manufacturers, in their quest to continually grow their sales continued to raise the bar in order to qualify for rebates," said Manthey.

In other words, medium-sized players like Inacom had to sell more in an increasingly competitive market, said Manthey.

The real crunch came 18 to 24 months ago, when resellers much bigger than Inacom started cutting their prices, said Manthey.

Inacom was now stuck between giants like Ingram Micro, with some six times the sales of Inacom, who could outbid Inacom when pitching big corporate sales, and smaller competitors who specialized in selling to smaller companies, said Manthey.

Last year Inacom bought Vanstar Corp. of Atlanta., which specialized in IT services. It was also losing money.

Who bought whom is debatable. Vanstar shareholders got more than half of the combined company's stock and company headquarters were moved this year from Omaha, Neb., to Vanstar's Atlanta headquarters.

Inacom sold its distribution business in February for $370 million to Compaq, getting out of procurement with its lower profit margins to concentrate solely on higher margin services.

Inatome resigned last fall as chairman to become CEO of ZapMe!Corp. of San Ramon, Calif., an Internet company.

The merger cost Fairfield his job as CEO, although he stayed on as chairman. Fairfield resigned in February and now heads an investment group that operates a chicken processing company in Nebraska that is emerging from bankruptcy.

Elliot Markowitz, editor of CRN, a weekly trade publication with an electronic edition, CRN.com, faults the leadership of the company and points at three factors that led to the capsizing of Inacom.

"No. 1, they were very slow in getting into the services business," said Markowitz, whose publication has tracked Inacom's fortunes for some 18 years. He discounts the importance of rebates on the company's fortunes.

Second was the acquisition of Vanstar, which turned out not to have the high margin services business that Inacom needed, said Markowitz.

"And the integration [of Vanstar into Inacom] was a nightmare," said Markowitz. "Integration and culture issues hit them in the face, completely smacked them."

"And the third thing, is you have the entire mismanagement of the company," said Markowitz.

"They were abandoning accounts, their service and sales people were leaving at record levels because compensation plans were completely screwed up," said Markowitz.

Inacom, loaded with debt and saying it had run out of cash and was unable to find new funding, filed for bankruptcy June 16, listing $560.6 million in debts and $956.5 million in assets.

A skeleton crew remains at Inacom as lawyers specializing in bankruptcy law maneuver to capture the company's still-substantial assets.

Trying to get hold of a human at Inacom in both Omaha and Atlanta to comment for this story on what happened was difficult. Phones are either disconnected or linked to answering services, with full voice mail boxes or recorded messages about benefits.

A flurry of lawsuits have been filed by various parties. The final autopsy will likely take place in a courtroom.